Grow Marijuana in California? Look Out For the Tax Man: Proposal to License, Regulate and Tax Weed Cultivation in the Works

The city of L.A. wants to impose an extra 5 percent tax on pot shops, and you'll get to vote on that idea March 8. And the California Board of Equalization (BOE) ruled Thursday that marijuana sales are not exempt from state taxes.

Now the BOE's L.A.-based chairman, Jerome E. Horton, is licking his chops over taxing growers:

"The time is overdue for the state to provide leadership for this industry regarding the manufacturing and sale of marijuana similar to what we did for cigarettes and liquor. Such proposed controls will have the same effect of regulating and controlling sales and capturing the appropriate sales tax."

Jerome Horton says we should tax California's largest cash crop.

He proposed Thursday that a law be passed in Sacramento that would get to the root of the pot shops murky supply lines. At $14 billion a year in revenues, marijuana is often cited as the state's largest cash crop.

BOE statement:

"Under proposed legislation, the BOE would administer a statewide license program for every marijuana grower, importer, wholesaler, and retailer in order to regulate marijuana sales in the state. A tax would be imposed on the distribution of medical marijuana at a rate equivalent to that imposed upon tobacco products. Any marijuana or marijuana products distributed by any unlicensed person would be subject to seizure. In addition, the unlicensed person would be subject to a fine of up to $5,000 or imprisonment not to exceed one year in county jail, or both."

Meanwhile the BOE on Thursday affirmed that California has the legal right to tax medical marijuana sales. Period.

Berkeley Patients Group, a dispensary, has repeatedly challenged the state's right to impose sales tax on bud sales and now owes $6.4 million in back taxes, says the BOE.

That might come as good news to the L.A. City Council, which has pushed an extra pot tax onto the March 8 ballot for your consideration. On top of a 10 percent county sales tax, dispensaries would be responsible for a 5 percent cut that would go to the cash-strapped city.

L.A. City Attorney Carmen Trutanich says the city can't legally impose the tax because pot shops are supposed to be nonprofits under state law and thus quality "for tax-exempt status under state or federal law."

But the BOE seems to differ.

"California Revenue and Taxation Code section 6051 states that sales tax is imposed upon all retailers for the privilege of selling tangible personal property at retail in this state, unless it is specifically exempted by statute. The Board relied on section 6051 in concluding that there is no specific exemption from sales and use tax for sales or consumption of medical marijuana and, therefore, the selling of medical marijuana as tangible personal property is subject to taxation. Consequently, the Berkley Patients Group is responsible for sales tax payments from 2004 up to the present for sales of medical marijuana."

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"Cannabis is not a prescription drug," he said. "It's more like an herbal medicine or over-the-counter drug, which are taxed in California.

"We think marijuana should go more toward over-the-counter category," said Gieringer, who helped write California's original medical marijuana law. "When we wrote Prop, 215 we didn't want to get bogged down in federal law involving prescription drugs."

On L.A.'s own proposed tax, Gieringer said NORML is neutral. But he sounded favorable toward the concept.

"I think in the long run there's no reason marijuana shouldn't be treated like other drugs. Every drug in the drug store is done by a for-profit company."

Dennis Romero is an L.A. Weekly staff writer. He formerly worked at the Philadelphia Inquirer and the Los Angeles Times, where he participated in Pulitzer Prize-winning coverage of the L.A. riots. His work has appeared in Rolling Stone online, the Guardian and, as a young stringer, the New York Times.